Reflecting on this last year has been a surreal exercise. The year began with some of the highest rates of the pandemic period and some of the worst port congestion on either side of the world’s oceans. While the market had calmed slightly from the peak of the difficulties between August and October 2021, it was still difficult to see the light at the end of the tunnel.
However, after the Lunar New Year in late February, noticeable changes occurred. Demand for space began to ease and “premium” rates soon gave way to normal pricing. By June, normal pricing began to decline on major trade lanes and competition for space became an exception, not the norm.
Now, as we prepare to finish 2022’s chapter in the history books, the situation could not be more different to how the year began. Several trade lanes, including Asia to U.S. West Coast, have seen container rates fall below pre-pandemic levels. Trade lanes that faced prolonged difficulties and higher pricing—such as Trans-Atlantic West Bound—are starting to reset.
Yet, we still face uncertainties and challenges as we head into 2023 and it is important to understand our industry’s current state, as we prepare to face what is ahead.
Demand Collapse
Last month, the top U.S. ports reported a 17.5% decline in year-over-year containerized volume. While some bookings have increased—before the 2023 Lunar New Year—it is expected that the beginning of 2023 will show volumes far below what was experienced in 2021 and 2022.
U.S. Port Congestion
This precipitous decline in demand and volume moving into the U.S. has given our ports some much needed relief. During various points of the year, almost all U.S. and Canada ports were facing vessel anchorage and significant delays.
As the year ends, only Savannah and Houston have reported any significant anchorage and delays, and their numbers are down significantly. With a slow December and even slower January expected, U.S. ports should be clear of most congestion by February 2023.
Spot Rate Re-Alignment
With the falling demand, container rates have dropped throughout the second half of 2022 and are expected to continue. Most Asia to U.S. trade lanes have reached pre-pandemic levels, or at least have them in sight.
Other trade lanes are still well above pre-pandemic levels, but they too have shown signs of weakening. India-Subcontinent to U.S. started to see reductions in October and have dropped more than 50% since. Cargo coming in from Europe faced the latest occurring congestion, but as that begins to dissipate the same signs we saw in Asia and India are starting to come to light.
Ocean Carrier Capacity Management
These rate declines will mean much needed relief for importers. However, ocean carriers will not sit by and watch pricing decline while maintaining overcapacity in the market.
Over the last month—and especially going into into January—we have seen aggressive blank sailings and service string cuts from the ocean carriers. Last week, THE Alliance announced blank sailings on almost 80% of their services to LA/Long Beach marking an extraordinary reduction in available capacity.
Ocean carriers will face difficulties in continuing to significantly reduce capacity at these levels given new-build vessels coming in 2023 and high costs for chartering and operating those already in service. However, carriers will do their best to match this demand reduction with capacity withdrawals, and they are willing to take drastic steps to do so, even if only short-term or temporarily.
ILWU / PMA Negotiations
One piece of major discomfort and uncertainty still yet to be resolved, is the continued ILWU/PMA negotiations for the West Coast longshoremen.
Working without a contract for more than six months, the lack of agreement between the PMA employers and the ILWU continues to be a concern. Although there have been limited reports of work slowdowns and other actions meant to be negotiation tactics being employed by either side, the threat of a significant labor action remains high.
Until a contract is in place, the situation on the West Coast remains fragile and a potential disruptor to what seems to be a return to stability in the supply chain.
Overall, we are entering 2023 in a more stable and regular environment than we were in when 2022 began. However, equilibrium is difficult to achieve and there are bound to be disruptions and overcorrections, as the industry comes to terms with current realities, while also trying to prepare and forecast what lies ahead.
By Chris Lindstrand, Director of International Transportation